If you are a sole trader, you are taxed on the profits you make before you draw any money for your personal use. This means you are taxed on the profit you make and not what you take out.
If you are in a partnership you will be taxed on your partnership share of the profits, and not what monies you have drawn from the business.
If you are trading as a limited company, you have a few options available to you:
Firstly if you have a PAYE scheme you can draw a salary and deduct tax and national insurance contribution. This is then a tax-deductible expense for the limited company.
Secondly, if you are a shareholder, you can draw a dividend. These can only be drawn from after-tax reserves. A dividend is not a tax-deductible expense in the limited company.
Dividends also attract a personal tax liability.
Your accountant will be able to advise you, of the most tax efficient way to take money from your business.
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Member since: 4th November 2013
I am partner at Knight Accountants, a family run accountancy practice based in St Leonards. We provide a fully serviced one stop shop for all your accounting needs. We also work on a fixed fees basis,...